African banks delivered some of the world’s highest returns on equity last year, but current factors make a repeat performance unlikely.
The African banking industry produced some of the highest returns on equity anywhere in the world in 2019, in some cases vastly outperforming their counterparts in more developed economies. Among the more dramatic examples are three of Global Finance’s 2020 Best Bank award winners: BNI Madagascar, with an ROE of 43.6%; Fidelity Bank Ghana, at 32.0%; and Zenith Bank in Nigeria, at 23.8%. For comparison, US banks’ average ROE has hovered in the range of 3% to 12% for the past decade, according to the Federal Reserve Bank of St. Louis.
But while 2019 was a good year for African banking, it wasn’t indicative of a trend. Even before the Covid-19 pandemic, Moody’s Investors Service last December posted a negative 2020 outlook for banks in Africa, owing to a weakening operating environment. Government debt levels are high on the continent and GDP growth will remain below potential, Moody’s predicts.
“Weakening operating conditions are pressuring governments’ credit quality, leading to a knock-on effect on banks through reduced business generation, slower credit growth and rising asset risk,” Constantinos Kypreos, senior vice president at Moody’s, commented. Asset risk will remain high, a result of rising government arrears, high loan concentration, borrower-friendly legal frameworks and still-evolving risk management and supervision capabilities, he added.
That said, pan-African banking groups, both homegrown and foreign-owned, are continuing to introduce modern banking products and services into new areas, despite difficult operating environments—and in some cases, as a way to negotiate around them.
Best Bank in Africa
Standard Bank, Africa’s largest banking group by assets with a presence in 20 sub-Saharan countries and 1,200 branches total, is Global Finance’s selection as Best Bank in Africa 2020 as well as our country winner in South Africa, its home base. Stanbic Bank Uganda, a member of the group, is Best Bank in Uganda.
“Africa is our home. We drive her growth,” says Standard Bank Group CEO Sim Tshabalala, who predicts that the bank’s growth elsewhere on the continent will outperform growth in its home country this year.
Standard Bank is a facilitator of financial flows into and across Africa and invests heavily in technology, turning out new product releases at a rapid pace both by harnessing its digital capabilities and through partnerships. The bank has cloud partnerships with Amazon Web Services, Microsoft and Salesforce.
Earnings for the group’s banking operations rose 5% in 2019, but headline earnings were up only 1%. The challenging economic environment in South Africa, where electricity supply problems…
Read More: World’s Best Banks 2020: Africa